Canary in a Coal Mine CEO Journal
Dan Marcus, TDC Consulting Inc., Amherst, Wisconsin W
hen the British group The Police released the infectiously catchy pop song “Canary in a Coal Mine” in 1980,
America’s industrial economy was between two close-together recessions and precisely on top of a historic tipping point. Prior to 1980, the economy had been characterized by strong growth, and business success was defined by how much met- alcasters and other manufac- turers could produce. But a whole new world was waiting for us on the other side of that tipping point, a world in which most of what we had learned about management and business success no longer held true. Instead of predictable growth, we
were faced in the post-1981 world with industry maturity, greatly diminished demand, and unpredictable, often- down-but-then-sometimes-up-again, business cycles. In this new environ- ment, characterized by increasing cus- tomer demands for improved quality, delivery and price, many of those who continued to focus on production and did not adapt to the new realities soon fell victim to the largest capacity shake- out in our industry’s history. Beyond the great shakeout, some
astute metalcasters have thrived in maturity. Conversely, many others only barely have survived the intervening decades. For these survivors, business performance has meant chronic low profits of 2-5% pre-tax when demand is up and less when the economy slows. One important reason for their inability to thrive is that too much of what their leaders learned about managing and success from the years prior to 1980 still dominates organizational thinking. Consider overtime. Prior to 1980,
when production was virtually all that mattered, overtime was simply a byproduct of success. And the more overtime, the more success, right? Not
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anymore. Today, overtime is a sign of excess, and chronic overtime is an unmistakable warning of imminent dan- ger. In this way, overtime is much like the proverbial canary in a coal mine. In the years since the great shakeout,
business failure in our industry more often has been precipitated by too much work than by too little. For example, in the majority of my turnaround as-
total labor hours are a sign of trouble. Moreover, chronic double digit over- time rates combined with chronic low profit (or worse) signify a metalcasting business that is out of control and po- tentially heading for disaster. Chronic overtime is a major problem
In today’s world, producing our way to success is not an option. We need to be much smarter than that if we are going to achieve double-digit pre-tax profitability, which should be every CEO’s goal.
signments, I walked into metalcasting facilities that were full with work while, at the same time, continually borrowing cash and unable to earn a meaningful profit. These businesses were charac- terized by a management ethos that emphasized volume, production and a full (even overfull) facility, a part popula- tion that included too much work that didn’t belong there, months and even years on end with little or no profit, and persistent, chronic overtime. These businesses tried to cure their lack of profitability with more work, giving too little regard for what that work consisted of and how it was priced. By doing so, they succeeded only in hastening their descent toward insolvency. In today’s world, producing our way to
success is not an option. We need to be much smarter than that if we are going to achieve double-digit pre-tax profitability, which should be every CEO’s goal. In that context, chronic overtime is perhaps the best indicator we have of a metalcasting business that is not being managed as intelligently as it could be. While overtime can be a useful management tool in modest amounts and for short periods of time, persis- tent overtime rates at or above 5% of
in and of itself. On the one hand, it wears out the workforce and creates conditions which lead to accidents, injuries, excessive scrap, low morale and labor unrest. On the other hand, chronic overtime wears out plant equipment (not to mention maintenance staff), dramatically increases both observable and hidden costs, contributes to soaring lead times, and endangers customer relationships. Persistent high levels of
overtime are an unmistakable indicator of major problems within the part popu- lation, particularly in an environment of chronic low (or no) profit. Specifically, they are a signal that the sales staff has brought in work that it shouldn’t have, and the facility must immediately shed parts that are “cost black holes.” These parts are out of sync with plant capabilities, kill flow and productivity, often run high scrap, hog support re- sources and contribute significantly to chronic overtime. Despite what job cost systems may indicate, these parts are significant profit drains. And don’t allow yourself to be fooled into believing that these parts aren’t so bad because they “absorb fixed costs.” That threadbare rationalization is yet another destruc- tive holdover from the days before our transition to industry maturity. My mentor Joel says (correctly) that
much of good management is indirect. In that way, overtime is among the CEO’s most potent tools for seeing and under- standing systemic realities that lie beneath the surface and beyond the obvious. MC
Keep the conversation going. Reach the author at
tdcmetal@wi-net.com to com- ment on this or any CEO Journal column or to suggest topics for future columns.
MODERN CASTING / December 2010
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